Avalara, best known for its comprehensive suite of SaaS-based tax compliance solutions, found itself on the defensive after competitor PTP OneClick filed a lawsuit in October in the U.S. District Court for the Eastern District of Wisconsin alleging a number of both federal and state legal violations. At the federal level, PTP OneClick alleges both patent infringement and trade secret misappropriation. At the state level, PTP OneClick alleges trade secret misappropriation, unfair competition, and breach of contract arising under the laws of the State of Wisconsin.

Founded over 30 years ago by Mr. Pavlos T. Pavlou, PTP OneClick focuses on sales and use tax compliance. PTP OneClick’s flagship product line, Pavlou SalesTaxPRO (“PSTP”), is the cloud-based embodiment of its end-to-end tax system solution. In particular, PSTP enables the automation of calculating, preparing, and filing state and local sales and use tax returns. On its website, PTP OneClick claims it “leads the industry with the most innovative, proven, secure technologies designed to improve the day-to-day management of tax requirements.” Competitor Avalara, founded in 2004 and now a public company, is also in the market of providing cloud-based automated tax compliance solutions to its customers. In addition to its sales and use tax solutions, Avalara also provides solutions for excise, value added (“VAT tax”), goods and services (“GST tax”), lodging, and communications tax. Avalara’s suite of tax tools focus on tax calculation, tax return generation, and tax document management.

PTP OneClick’s October lawsuit stems from a meeting that purportedly took place between Mr. Pavlou and Avalara representatives in August 2011. During the meeting, and subject to a confidentiality agreement, Mr. Pavlou alleges he demonstrated his PSTP product line and disclosed the technical details of how PSTP functioned to Avalara. (See Complaint, at ¶¶ 14-26). Prior to the 2011 meeting, Mr. Pavlou claims Avalara’s products “did not allow users to accurately or comprehensively calculate multi-level local sales and use tax or prepare or file returns for the same.” (Id., at ¶ 15). In 2017, Mr. Pavlou alleges he was informed by an investor that Avalara released a series of updates to their tax solution products in 2012 incorporating the PSTP technology disclosed during the August 2011 meeting. (Id., at ¶ 43).

With regard to its patent infringement claim, PTP OneClick alleges several of Avalara’s tax solutions, namely Avalara’s AvaTax, Returns, and TrustFile infringe PTP OneClick’s sole patent, the 9,760,915 patent (“the ‘915 patent”), which discloses a complex database of taxing authorities and tax rates that respond to user input to generate a completed tax return. According to PTP OneClick, Avalara’s accused products, when coupled together, infringe the ‘915 patent. To support its trade secret misappropriation, unfair competition, and breach of contract claims, PTP OneClick alleges Avalara used the information disclosed during an August 2011 meeting, which was subject to the confidentiality agreement, in its design and manufacture of the accused products. As a result, PTP OneClick alleges the accused products now perform the same functionality as PSTP. (Id., at ¶¶ 61-66).

In a potentially problematic admission, while PTP OneClick’s lawsuit claims Avalara’s tax solutions perform the same functionality as PSTP, its website appears to assert the opposite. In a product evaluation chart, PTP OneClick compares its PSTP solution with other industry solutions. Of particular note, in multiple key categories relating to functionality for preparing and filing sales/use tax returns, PTP OneClick’s website asserts Avalara’s products do not perform these functions. This marketing contradiction could prove challenging for PTP OneClick as the lawsuit progresses.

While this lawsuit is in its early stages, Avalara has already moved for dismissal as well as for a change of venue from Wisconsin to the Western District of Washington. In its motion to dismiss, Avalara alleges that PTP OneClick’s patent is invalid as directed to an abstract concept that is not patent eligible, and that the trade secret misappropriation claims are time barred by the applicable statutes of limitation. As this is the only patent infringement lawsuit PTP OneClick has pursued as a plaintiff, it will be interesting to see whether PTP OneClick aggressively litigates its claims against a growing competitor. Given that the asserted ’915 patent comprises the entirety of PTP OneClick’s patent portfolio, this case is yet another example of a cloud-computing company risking its entire patent portfolio to ward off competitors, similar to Police Priority’s IP battle against I-View, Centripetal Networks’ patent fight against Cisco, and ScaleMP’s offensive against TidalScale.